Dalmare Spa (Appellants (Sellers) v Union Maritime Ltd and Another (Respondents (Buyers) (The "Union Power")

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeThe Hon Mr Justice Flaux,The Honourable Mr Justice Flaux
Judgment Date13 Dec 2012
Neutral Citation[2012] EWHC 3537 (Comm)
Docket NumberCase No: 2012 FOLIO764

[2012] EWHC 3537 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Honourable Mr Justice Flaux

Case No: 2012 FOLIO764

In An Arbitration Claim

And In The Matter of an Arbitration

Between:
Dalmare Spa
Appellants (Sellers)
and
(1) Union Maritime Limited
(2) Valor Shipping Limited "Union Power"
Respondents (Buyers)

Mr Timothy Hill QC (instructed by Ince & Co LLP ) for the Appellants(Sellers)

Mr Simon Rainey QC (instructed by Clyde & Co LLP) for the Respondents (Buyers)

Hearing date: 30 November 2012

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

The Hon Mr Justice Flaux The Honourable Mr Justice Flaux

Introduction and background

1

The Appellant sellers appeal (with the permission of Hamblen J) a question of law arising out of the Final Award of the arbitrators, Simon Crookenden QC, Michael Baker-Harber and Simon Gault ("the tribunal") dated 8 May 2012 whereby the tribunal decided that the Respondent buyers' claim for damages for breach by the sellers of a contract for the sale of the vessel CALAFURIA now renamed UNION POWER succeeded in full.

2

The essential facts as found by the tribunal which are relevant for the purposes of this appeal are as follows. By a Memorandum of Agreement ("the MOA") on the Norwegian Saleform 1993 ("Saleform 93" dated 4 September 2009, the sellers agreed to sell and the buyers agreed to buy the vessel, a 1994 built motor tanker, for US$7 million.

3

The relevant terms of the MOA were as follows:

Clause 4. Inspections

a) The Buyers have inspected and accepted the Vessel and the Vessel's classification records. The Buyers have also inspected the Vessel in Piraeus, Greece on August 18, 2009 and have accepted the Vessel following this inspection and the sale is outright and definite subject only to the terms and conditions of this Agreement.

Clause 6. Drydocking/Divers Inspections

b) The Vessel is to be delivered without drydocking…

Clause 11. Condition on delivery

The Vessel shall be delivered and taken over as she was at the time of inspection, fair wear and tear excepted. However, the Vessel shall be delivered with her class maintained extended to 30 September 2009 without condition/recommendation, free of average damage affecting the Vessels class. The Vessel's continuous survey cycles of machinery are to be as per current machinery continuous status attached hereto (attached "A"). Her International, National, Class and Trading Certificates clean, valid until 30 September 2009, except ISSC and SMC to be valid at time of delivery only, …"

4

The buyers inspected the vessel at Piraeus on 18 August 2009. The vessel was classed by RINA and was due her third special survey as the buyers knew. They had carried out an underwater survey which revealed no bottom damage affecting class. Also, through their agents CS Associates, they inspected the class records (as was their right under the MOA). They found nothing of significance and reported that she could be characterised as "a quite good vessel". Unfortunately they failed to pick up a reference in the class records to an incident in October 2002 referring to damage to the no.1 crankpin of the main engine.

5

The vessel was delivered to the buyers at Tuzla, Turkey on 1 October 2009. She was immediately drydocked there, repairs were carried out and the special survey was undertaken by ABS, since the vessel changed class upon the transfer of ownership. During that survey, the crankpin bearings of nos. 2 and 4 units were opened up and found in a satisfactory condition, on the basis of which ABS credited all the crankpin bearings for the purposes of the special survey. Following the repairs and special survey, the vessel undertook a sea trial during which, apart from a minor oil leak, the main engine operated satisfactorily.

6

On 5 November 2009, the vessel departed from Tuzla on a ballast voyage to Malta to load a cargo of diesel. At about 19.00 hours on 6 November 2009, only some 30 hours after she had departed from Tuzla, the main engine broke down. On opening the crankcase, it was found that the no.1 crankpin bearing had failed. The vessel was towed to Greece for investigation and repairs. The crankpin was found to be significantly undersize and oval. Having heard factual and expert evidence, the tribunal concluded that the ovality of the no.1 crankpin was the cause of the main engine breakdown. The tribunal also found that the ovality had developed to such a state at the time of delivery that the crankpin bearing was likely to fail within a short period of normal operation of the main engine after delivery of the vessel.

7

The buyers contended in those circumstances that the sellers were in breach of the MOA either because the ovality was "average damage affecting class" within clause 11 (a contention which the tribunal rejected) or because there was a breach of the implied term as to satisfactory quality implied into the MOA by virtue of section 14(2) of the Sale of Goods Act 1979 ("SOGA") as amended. The sellers denied that any SOGA terms were to be implied into the MOA and argued that the terms of clause 11 were inconsistent with the SOGA implied terms in that the vessel was sold "as she was". The tribunal rejected that argument, holding that the implied term as to satisfactory quality was to be implied into the MOA, the sellers were in breach of that term and the buyers' claim succeeded in full.

The question of law

8

On 21 August Hamblen J gave permission to appeal on the following question of law:

"Whether a term as to satisfactory quality is implied into the Contract/MOA by Section 14 of the Sale of Goods Act 1979?"

Hamblen J considered the question of law to be one of general public importance and the decision of the tribunal to be open to serious doubt. As the tribunal itself recorded in [45] of the Award, the issue whether the SOGA implied terms as to quality and fitness for purpose are implied into Saleform MOAs is one which has arisen many times in London arbitrations but surprisingly is an issue which has never been addressed directly by the English courts.

The relevant provisions of SOGA

9

The provisions of SOGA (as amended by the Sale and Supply of Goods Act 1994) which fall to be considered in this case are as follows:

"14. Implied terms about quality or fitness.E+W+S+N.I.

(1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied term about the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods—

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,

(b) appearance and finish,

(c) freedom from minor defects,

(d) safety, and

(e) durability.

(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory—

(a) which is specifically drawn to the buyer's attention before the contract is made,

(b) where the buyer examines the goods before the contract is made, which that examination ought to reveal, or

(c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.

55. Exclusion of implied terms.

(1) Where a right, duty or liability would arise under a contract of sale of goods by implication of law, it may (subject to the Unfair Contract Terms Act 1977) be negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract.

(2) An express term does not negative a term implied by this Act unless inconsistent with it."

The reasoning in the Award

10

Before considering the parties' submissions in more detail, I propose to set out the relevant part of the Award where the tribunal deals with the issue as to whether the terms in section 14 of SOGA are to be implied into the MOA. This is at [53] to [61]:

"53. In considering whether the SoGA terms are to be implied, the starting point must be s.55(2) of the SoGA as amended…

54. In the Tribunal's view, s.55(2) provides a statutory test for whether the SoGA terms are negated by the other terms of the contract. The normal rules for the construction of a contract by which a court or tribunal seeks to ascertain the presumed intentions of the parties from words they have used do not, therefore, apply.

55. The above cases of " The Morning Watch" and "The Brave Challenger" indicate an accepted and understood meaning to the phrase "as is, where is" as meaning that the purchaser takes a vessel as he finds it. It may be that a contract that states simply that a sale is "as is, where is" and little more would have that meaning. It does not follow that the words "as she was" in Saleform 93 have the same meaning.

56. The phrase "as she was" forms a necessary part of the contractual arrangement under Saleform 93 under which a vessel is inspected by a prospective purchaser on a particular date but remains in the possession of the seller who is free to continue to trade the vessel until delivery. Clause 11 of Saleform 93 provides for any...

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